REG. NO.

: BIMS/HP/02/2007/1311

NAME : NEETA MENON

PRODUCTION AND OPERATION MANAGEMENT

Answer 1. (a)

Objectives of POM

With a view to producting goods and services of right quality in right quantity at right time and
at minimum cost, the Production and Operation Managers may have one or more of the
following objectives for framing their managing strategy and policies:-

a. Efficiency to maximize the output for given input.

b. Productivity to maximize the production in relation to specified resources

whether computed singly or in combination of such resources. For example, Labour
Productivity may be maximized either by increasing production with the same labour or
maintaining the same level of production with reduced labour.

c. Cost Reduction to reduce the cost of production which is directly related to the
competitive strength of the company in market.

d. Quality to be a distinctive feature of a product for its uniqueness or general

purpose utilisation with added reliability.

e. Quality to be a distinctive feature of a product for its uniqueness or general

purpose utilisation with added reliability.

f. Reduction in Processing Time to reduce the throughput time for processing or

the lead time between placement of order by a customer and actual delivery of goods or
services.

Elements of Production and Operations Management

The business of conversion process may be divided into three prominent phases namely
planning, organizing and controlling. These phases are not compartmentalised but are
overlapping onto each other. Each of these phases involves several actions which are depicted
in the model at Fig.1.1 and discussed in varying detail in subsequent chapters.

The managerial activities in any business unit are commonly termed as planning, organizing,
staffing, decision making, motivating, leading, directing, coordinating, communicating,
controlling and so on. Several authors and management thinkers have grouped these activities
is different ways and produced different set of lists. Harold Koontz and team detailed these as
planning, organizing, staffing, leading and controlling. Some argued that organizing and staffing
cold be just one function. Others feel directing is more appropriate a term than leading in
business situations and the former should include the latter. Another school thinks coordinating
and communicating should be considered as different functions. Indeed these groupings may be
varied according the predominance of activities in different types of organizations.

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 Fig.1.1. Elements of Production and Operations Management (POM)

In order to simplify the managerial functions in POM, the chapters of this compilation have been
organized according to the model at Fig 1.1. This figure is a basic Input/Output model
superimposed with the concepts of Operational Management Theory. Inputs like land, labour,
capital, raw material, technology and management are fed into the system. Conversion of these
inputs is undertaken to produce desired goods and services which are the outputs. There are
input adjustment and output monitoring points to regulate the conversion process.

Planning in any business is the most crucial activity. When it is related to productions and
operations of goods and services, it has to be elaborate and in great details. It should be based
on best planning premises and all possible tolls and techniques should be applied to work out
the best plan. All aspects of production and operations must be covered in the planning. When
planning is carried out meticulously, the implementation or conduct of operations and control of
activities becomes easier. Therefore various related aspects of planning are organized in
different chapters.

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Answer 1. (b)

Planning

Planning involves commitment of resources. Once committed the resources loose the flexibility
of their redeployment and the navigational management becomes restricted. If planning based
on incorrect premises or inadequate data has been followed up with development of
infrastructure, procurement and installation of machinery contracting for services to build up the
production system for proposed goods and services, there may be very few options to undo
those commitments. The enterprise may run into a serious problem.

Objective of Planning

Planning should result into the following:-

a. Identification of Product to be offered its design and distinctive features from

the products already existing in the market.

b. Selection of the Process and Technology to be used for production.

c. Location and Layout of Plant and facilities where goods and services should be
produced.

d. Material Handling Equipment (MHE) to be used.

e. Capacity of the Plan to be installed.

f. Forecasting of demand or sales.

g. Production planning to include procurement of material, sequencing of

machine operations, scheduling of activities and outline organization/control systems.

h. Logistics Details along with warehousing and distribution system.

Basic Stage of Planning

The entrepreneur plans to achieve the objectives of planning through two distinct stages:

a. Strategic Planning to identify the purpose of business, product and process

design, selection of plant and its layout.

b. Detailed Planning for the use of the conversion process.

Strategic Planning

Strategic planning is thinking thorough the current mission of the organization and
environmental conditions facing it and then setting forth a guide for future decisions and results.
The strategic planning involves systematic assessment of environment, mission, and position of
the proposed enterprise, which should result into several strategic options. Various factors to be
considered during the strategic planning are shown in Fig.1.2 Strategic Planning for Operations.

After several viable options have been identified, their critical analysis should be carried out to
identify the best strategic plan which will form the basis for issue of policy for further detailed
planning.

An analytical model of the corporate planning process is shown in Fig.1.3. as this plan is
reiterative, its sequences or cycles are to be repeated several times till a final feasible plan is
identified.

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The strategic planning will result into identification of products or product groups, processing
technologies, capacity, locations and layouts of facilities and creation of infrastructure.

Detailed Planning for Operations

Fig. 1.2. Strategic planning for operations

Planning for operations involves going into more details. These will include forecasting of
demand, matching the demand with the capacity available, identifying additional capacity or
running existing capacity to the extent it is required to meet the demand. An aggregate
planning for production over next one to two years is also carried out. That helps in planning for
procurement of raw material or industrial goods, details of organizations to be raised and
scheduling and sequencing of activities which will result into the final product.

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 Fig.1.3. Analytical corporate planning process

Answer 3. (a)

Total quality control (TQC)

The underlying principle of TQC is to produce high quality goods in the first place rather than
rejecting defective products later in the inspection. It involves following:

1. Top management involvement.

2. Quality Control Training for everyone.

3. Robust product/service for everyone.

4. High quality raw materials from suppliers.

5. Control in production.

6. Quality Control is distribution, installation and use.

Deming’s 14 Points

W. Edwards Deming (Father of Quality Control in Japan) emphasized that high quality means
lower costs and professed the following points to managers.

1. Create consistency and continuity of purpose.

2. Refuse to allow commonly accepted levels of delay for mistakes, defective material and
defective workmanship.

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 3. Eliminate the need for and dependence upon mass inspection.
4. Reduce the number of suppliers. Buy on statistical evidence, not price.
5. Search continually for problems in the system and seek ways to improve it.
6. Institute modern methods of training, using statistics.
7. Focus supervision on helping people to do a better job. Provide the tools and techniques
for people to have pride of workmanship.
8. Eliminate fear, Encourage two-way communications.
9. Break down barriers between departments. Encourage problem solving through team
work.
10. Eliminate the use of numerical goals, slogans, and posters for the work force.
11. Use statistical methods for continuing improvement of quality and productivity and
eliminate all standards prescribing numerical quotas.
12. Remove barriers to pride of workmanship.
13. Institute a vigorous program of education and training to keep people abreast of new
developments in materials, methods and technologies.
14. Clearly define management’s permanent commitment to quality and productivity.

Deming’s Cycle

For control of quality, Edwards Deming has suggested a cycle of four operations that is Plan, Do,
study or check and Act. The cycle is shown Planning is related to setting standards and methods
of achieving. Doing is implementing the plan. Checking or studying is comparing the
specifications of outputs with those of planned specifications. Acting is relating to corrective
action to be taken. This cycle is shown to reiterate itself during the doing stage because while
workers implement a plan, they follow the same cycle within their own functional area.

Answer 3. (b)

Quality Movement

Post industrialization era marked with two world wars, witnessed a phase of heavy requirement
of goods and over production of items which the post second world war markets could not easily
absorb. In spite of greatest care taken for quality control through various statistical methods a
need was felt for greater concern for customer requirements and control of production to meet
their qualitative and quantitative necessities. The Japanese rose to the occasion and with help of
international management specialists initiated a number of ideas which have become a
philosophy for working and means for Quality production at the same time cutting costs.

Quality and Cost Economics

One obvious way of producting good quality products is their robust design and higher
processing technology which should produce the least number of defectives. However, that
involves very high costs. The cost of processing is shown in Fig. 3.2 as the quality standards
increase, the processing cost increases. On the contrary, as the quality of product and process
design increase, the cost of measures taken for quality assurance reduces. Sum of these two
costs forms the Total Incremental Cost and is also shown in Fig. 3.2. The design and quality
assurance norms can be selected within the limits shown as managerial choice area.

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 Fig 3.2. Cost of Design, Processing Technology and total cost for quality

Philip Crosby corporate VP and Director Quality at ITT once said, “Quality is free. It is not a gift,
but it is free. What costs money is the unquality things all the actions that involve not doing jobs
right the first time. Quality is not only free. It is an, honest to everything, profit maker. Every
penny you don’t spend on doing things wrong, over, or instead becomes half a penny right at
the bottom line.”

American Society for Quality Control (ASQC) has identified four categories of quality costs as
follows:

A. Internal failure costs. Theses are costs associated with defects (errors, non conformance
etc.) which are found prior to transfer of product to customer. These are costs which would
disappear if no defects existed in the output product. They include scrap which cannot be
economically repaired, rework which is the cost of correcting the defectives, failure analysis
costs towards analyzing non-conforming product to determine causes, costs of inspection,
avoidable processing losses and downgraded products.

B. External Failure Costs. External Failure Costs are associated with defects that are found
after the product is transported to the customer. These could be reduced only if there were
no defects. For Example, warranty charges, complaint adjustment, returned material and
allowances or concessions made to the customer due to sub standard product being
accepted.

C. Appraisal Costs. These are the costs incurred in determining the degree of conformance to
quality requirements. For example, Incoming, in process and final inspection and testing
costs, costs of keeping measuring instruments in order and correctly calibrated, costs
involved in inspection and testing of material from suppliers and valuation of stocks.

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D. Prevention Costs. These are costs incurred in keeping failure and appraisal costs to a
minimum. For example, Quality Planning, New Product Review, Process Control, Quality
Audits, Supplier Quality Evaluation and Training.

Genichi Taguchi, a Japanese engineer took into account losses to the society due to poor quality
or deviation from standards. He said, “For each deviation, there is an incremental economic loss
of geometric proportions resulting into great cumulative effect”. He therefore defined quality as
“minimizing the variability while achieving the target” as from “achieving conformance to
specifications”. He suggested that experiments should be designed to identify the factors
causing those variations.

Dr. J M Juran has likened the costs of poor quality to an iceberg where the obvious costs are only
its tip and hidden costs form the bulk. The costs involved with poor quality are shown on an
iceberg at Fig. 3.3

Fig.3.3. Costs of poor quality.

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Answer 4. (a)

Multiple Activity Charts

These are charts on which the activities of more than one subject (Workers, machines or items
of equipment) are recorded on a common time scale to show their interrelationship.

Example During the “running in” period of a new catalytic converter in an organic chemical
plant, frequent checks on the conditions of catalyst were necessary in order that the converter
should not be out of service for any longer than was strictly necessary during these inspections,
the job was studies. The original operations carried out by four working teams taking six hours
are shown in Fig. 4.1.

Fig. 4.1. Multiple activity charts

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Inspection of Catalyst in a Converter (original method).

Fig. 4.2. Multiple Activity Chart

Inspection of Catalyst in a Converter (improved method)

Examination of the chart at Fig.4.2 indicated that before the top of the vessel was removed by
fitter and his mate, the heaters had to be removed by electrician and his mate. The fitter had to
wait until the electricians completed their work. Similarly at the end of the operations, the
heaters were not replaced until the top had been replaced. Questioning on the existing
procedure revealed that it was not necessary to wait for the heaters to be removed before
removing the top. Once this had been established, it was possible to arrange for the top to be
unfastened while the heaters were being removed and for the heaters to be replaced while the
top was being secured in place. A revised procedure shown in Fig. 4.2. was adopted reducing
the idle time of electricians and filters although that of the rigger remained the same. The
saving affected was 32%

Work Measurement

Purpose

After required method studies have been carried out and redundant elements on part of
materials and operatives have been reduced, it is logical to carry out work measurement to
investigate and eliminate ineffective time in the improved methods. Work measurement is the
application of techniques designated to establish the time for a qualified worker to carry out a
specific job at a defined level of performance. It can be carried out for the following purposes:

a) To evaluate a workers performance.

b) To plan the workforce needs.

c) To determine available capacity.

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d) To determine price or cost of product.

e) To compare work methods.

f) To facilitate operation scheduling.

g) To establish wage incentives schemes.

Techniques of Work Measurement

The techniques of Work Measurement are shown in Fig.4.3. and described below.

Fig.4.3. Techniques of Work Measurement

Answer 4. (b)

Japanese Industrial Philosophy

For nearly two centuries, the area of production and operations management was dominated by
scientific management thought modulated by social and behavioural sciences. The social and
behavioural experience was based primarily on occidental culture. The rise of Japanese industry
built on those very scientific principles but a different culture of the orient came as a big
surprise to the west where the original principles were formulated. This Japanese culture made
the difference in the manner of peoples’ commitments to their work and loyalty to the
organizations they served. In addition the Japanese Ministry of International Trade and Industry
(MITI) was supportive to the concerns of their industries rather than being merely regulatory.
The Japanese increased their market share alarmingly. Their rare learning behaviour attracted
specialists from all over and helped them in their growth so much so that they have now
become leaders in management though in areas of organizing, production, quality and cost
competitiveness. Their management concepts have come to be known as Theory Z which
embraces all managerial functions with a marked difference. And yet the Japanese say they owe
it all to the West.

They learnt in time - Henry Ford Sr. son of an immigrant farmer in USA rose to set up his car
plant at the Rouge, in Detroit, USA on a piece of land about 3 km long and 1.5 km wide. In 1920s
on completion the plant had 93 buildings, about 150km of track way, 45km of conveyor belts,
75000 men including 5000 sweepers. It had its own steel mill and glass plant. Iron ore was
brought in barges, unloaded by huge cranes and conveyed to the blast furnace. Next day metal
was poured into a foundry mould to become an engine. Someone then commented “Here is the
conversion of raw materials to cash in approximately 33 hours”.

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By the end of the Twentieth Century the plant produced and shipped per day about 600 Ford
Mustangs with marked difference in quality and reduced throughput time to 32 hours. The
Complex then had the Dearborn Assembly Line, Engine and Fuel Tank Plant, Frame Plant,
Stamping Plant for sheet metal and Tools and Die Plant. Mustang’s Body Area itself
encompassed 3, 55,000 square feet, had 145 robots to perform structural integrity, material
handling, welding and painting etc. There were three sub assembly build up areas called the
Front Structure framing and Respot, Rear Pan Assembly and Respot and Side Body Sub
Assembly. There were six major sub assembly/welding lines called Press Line (joining rear pan,
centre pan and front end, Underbody respot and Clamp Line (joining body side to Underbody),
Welding bucks (providing dimensional and weld integrity, Roof Line, The IBM respot Line and
Closure Line (to assemble the doors, hood and near deck lid to the vehicle).

A perspective of the activities along Ford Mustang’s Assembly Line is at Plate 12.

The Western Car Industry came under severe pressure of market competition in terms of quality
of design, consumer comfort, fuel economy, and price and delivery schedule across the globe.
The Japanese took the lead.

By 1982 Japanese car maker Toyota mastered a concept of receiving the parts “Just in Time” to
be assembled. The concern was to produce automobiles by units in various steps. Each step
contributed to a phase in value addition in various sub assemblies which had synchronized
output time. Initially attempt was made to reduce defective sub assemblies, which could be
rectified after production inspection and rectification. Subsequently, the defectives along the
processing cycle were completely eliminated. They were operating under the JIT philosophy. But
true to the oriental culture, Eiji Toyoda of the company told a visiting American Delegation,
“There is no secret to how we learnt to do what we do. We learnt it in the Rouge”.

Are we on the mark?

With introduction to Maruti 800 in the Indian market in 1986, Premium Automobiles Ltd. Faced
the problem of fall in demand of their product Premier Padmini, the most popular car in the
country at that time. There was a problem of rise in cost price. Inventory was stocked up and
there was a fall in sales. The company reacted to the situation by indigenised fuel efficient
design cutting costs, lowering of prices, aggressive sales promotion measures and research and
development efforts for producing a car that could compete with the Maruti. Much has
happened in automobile industry in India in the last decade and much more is to happen in the
disinvestment drive for the Public Sector companies. Study the situation from the media and
make your own assessment.

A comparative study of Western and Japanese organizations as related to Production and

Operation Management in particular is given in Table 4.5.

Characteristics Japanese Organizations Western Organizations

Duration of Employment Life long employment (55 Short term employment (No
years of age). Upper age limit).

Evolution and Promotion Slow and steady Rapid jumps or retrenchment.

Career Paths Non-specialized. Specialized.

Control Mechanism Implicit, by peers. Explicit, by superiors.

Decision Making and Collective (Ringi), slow Individualistic, formalized and

Implementation decision making but speedy prompt decisions. Slow
implementation implementation.

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Responsibility and Collective, saving face. Individualistic, fixing blame.
Accountability

Concern for employees Holistic. Segmented.

Governments Approach Supportive Regulatory.

towards industry.

Family Loyalty to Business Predominantly exists. Rarely exists.

Answer 5. (a)

Mckinsey’s seven –s Framework Reviewed.

McKinsey, an experienced consultancy firm had identified 7 S frameworks as an approach to

management as follows:

1. Strategy is regarding planning or systematic action and allocation of resources to achieve

Company’s aims.

2. Structure is related to organizational structure, authority, responsibility, line and staff

relationship, departmentation, centralization and decentralization.

3. Systems like information, manufacturing process, budgeting and control mostly related to
operations management.

4. Styles are about the way management behaves and collectively spends its time to achieve
organization’s goals. It is akin to leading.

5. Staff is about the people in an enterprise and their socialization into organizational culture.

6. Shared Values are about the values shared by the members of an organization and
represent organization’s culture and subordinates goals.

7. Skills refer to distinctive capabilities of an enterprise as a whole and are useful towards
strategy formulation.

Richard Pascale and Anthony Athos after comparative study of Japanese and American firms
observed that in the first three of the above list, Strategy, Structure and Systems, the American
organizations were very strong and they called them Hard S’s. On the contrary, the other four
S’s Staff, Skills, Styles and Shared Values, the Japanese enterprises had an advantage because
these called for closer involvement of people and better behavioural interactions. These were
called Soft S’s.

Realization of this difference made a number of Western Companies restructure them; IBM
started an Open Door policy, customer service, employee welfare, elimination of piece work,
revised salary structure and medical cover etc.

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The Seven S framework is shown in Fig. 5.1.

KAIZEN

Japanese word Kai means ‘always continued change’ and Zen means ‘good improvement’.
Kaizen thus means “continuous and ongoing improvements’. The idea is that continuously
taking small steps in improvements should be the key to long term success. It is a journey from
enforcement of change to inducement of change.

Kaizen is based on a Five S framework as follows:

1. Seiri (Sorting Out) with the objective of saving and recovery of space, involves the following
a. Segregate necessary items from unnecessary ones and dispose off the non useful.
b. Demarcate the items into four categories Not needed, Needed but now, Needed but
not so close to the place of operation and Needed but not in so much quantity.
c. Decide on the frequency of sorting out.
2. Seiton (Systematic Arrangement) with the objective of minimizing the search time and de-
cluttering of workplace emphasizes on an efficient functional layout of workplace or
workshop.
3. Seiso (Spic and span) With the objective of keeping all items in working conditions suggests
that during normal cleaning and maintenance disposal or repairs of affected items should be
undertaken.
4. Seiketsu (Standardisation) with the objective of higher productivity and better quality aims
at sticking to the standards achieved so that there is no degradation, also following a
consistent policy for upgradation.
5. Shitsuke (Self Discipline) with the objective of doing things right the first time and every
time.
Kaizen is required in all activities of an organization, be it primarily in productivity improvement,
new product development, zero defect production, labour management relationship or total
preventive maintenance or just in time Inventory.

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Large scale capital intensive innovation rarely takes place. Smaller and continuous
improvements are more realizable, predictable, controllable and acceptable. Various
behavioural, cultural and philosophical changes are brought out through small step by step
improvement. Kaizen can be initiated at any level. But it must involve lower level. The whole
process can be best initiated from the philosophical to the implementation level.

For Most of the processing systems, the Western approach has been to maintain a piece of
equipment as long as it is operating economically and after that initiates innovation. Such
innovation calls for heavy capital outlay. The concepts of Kaizen are a step over maintenance
and add to the longevity of the existing plant. The concept is illustrated in Fig 6.2. Consisting of
two diagrams. The upper diagram shows state of an equipment system’s availability standards
without the practice of Kaizen. When equipment is installed initially or as innovation process it
has a certain standard of performance. Over some time the standard deteriorates. The state of
such deterioration can be checked by maintenance and equipment is used till it is found
economic. After that another renovation takes place and the standard is raised. The cycle
follows. In the lower diagram the same steps are shown with added benefit that there is gradual
improvement due to kaizen and the higher standards can be achieved without renovation. When
renovation is carried out the new standards are much higher than what was achieved without
kaizen.

Situation with innovation only

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Answer 5. (b)

Technology Innovation and Upgradation

With exceptions of a few innovations caused accidentally (like Hargreave’s upturned Spinning
Wheel resulting in the invention of the Spinning Jenny) most innovations are result of persistent
hard work on research and development. Regretfully, where innovation is most acutely required,
least amount of effort is deployable. This has resulted into technologically advanced countries
getting better and better while the advancing countries lagging far behind. Brain drain from
technologically advancing countries to advanced countries only adds to the problems of growing
countries. The following measures can however be taken for technology upgradation:-

a. Pragmatic and supportive government policies like MITI (Ministry for

International Trade and Industry) helped the Japanese Industry.

b. Determination and drive by industrial houses for innovation.

c. Protection of intellectual property right.

d. Selective import of technology.

e. Extension of financial resources to enterprising research workers.

f. Development of research and development task force.

g. Active interaction between business houses, industry, Research and

Development institutes and business schools.

Transfer of Technology

Technology may be transferred by any of the following ways:-

a. Bilateral agreement between governments of countries.

b. Interaction between industries as joint ventures.

c. Reverse Technology and Code Diffusion.

Stages of Technology Transfer

The transfer of technology may be achieved through four stages, that is, Acquisition,
Absorption, Adaptation and Improvement.

1. Acquisition of Technology

a. Selection of product.

b. Selection of technology.

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 c. Selection of collaboration by global tenders.

d. Licensed agreements.

2. Absorption of Technology

Following activities take place during absorption of technology:

a. Preparation of detailed project Report, Comprehensive Study,

Interpretation and Faithful Implementation of various rights and obligations of the
agreement by collaborators and recipients.

b. Implementation of project within time frame and budgetary allocation.

c. Creation of exhaustive and proactive management information system

(MIS).

d. Periodic Review, control and evaluation of state of absorption with further

prospects and constraints.

e. Critical financial analysis.

f. Development of infrastructure.

g. Rate of absorption by recipient industry is assessed from the skills and

knowledge acquired by staff or percentage of contents of imported material compared to the
cost of imported goods. This rate is called integration and may be expressed by the following
formula:

I = (Cost of Finished Goods – Cost of Raw Material) * 100

Cost of Finished Goods

All costs are in terms of CIF (Cost, Insurance and Freight) values.

As integration increases, the proportion of imported contents reduces. For

example:-

a. Integration when equipment is imported in Semi Knocked Down (SKD)

condition. It may be 10to 20%.

b. Integration when equipment is imported in Completely Knocked Down

(CKD) condition. It may be 50 to 60%.

c. Full integration say 90-100% may be assumed when inputs are reduced to
0 to 10 percent with confidence of carrying out production.

d. Assessment of Value Addition which may be made by the following

formula.

V=P–M

Where,

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 V = Value Addition

P = Ex factory price of product

M = Cost of Material

= a + b for Horizontal Integration, where there is less to make and more to buy =a+b+
c for Vertical Integration, where there is more to make and less to buy.

a = Cost of imported material in FOB

(free on board) value.

b = Cost of indigenous material

c = Ex factory price of sub assemblies used in production in addition to materials included in

‘a’ and ‘b’ above.

e. Critical Study of flow of foreign exchange and keeping it under control.

f. Assessment of overall production performance for making navigational

changes.

3. Adaptation of Technology.

Once the technology is absorbed, it will lead to self reliance and should be used to increase
distinctive competitiveness in global context. The process may go through the following stages:

a. Indigenisation of products.
b. Development of vendors with adapted technology for production of
components.
c. Development of ancillaries for the dissipation of technology for
optimization of growth potential.
d. Marketing measures taken to promote social orientation towards
products and technologies for increase in market share.
e. Provision of fiscal support and financial incentives like taxation and
subsidiaries.
f. Extension of coordination and co operation for exploitation of all
possible benefits.

4. Adaptation of Technology.

Trading or transfer of technology by technologically advanced countries, today, has become a

strategic business. One should not therefore be surprised that by the time imported technology
is adapted by the recipient, it has already become obsolete in the global market. Added to that
is another phenomenon. If we consider that the absorption of technology takes place in
arithmetic progression, the growth of technology takes place in geometric progression. The gap
between technology transfer and technology upgradation is therefore bound to widen. Logically,
no attempt should be made to bridge the gap because the moment after the bridge is placed
over the gap; the gap widens and down goes the bridge. The answer lies in closing the gap and
not attempting to bridge it. In other words, once an advanced technology has been acquired,
simultaneously action should be taken to keep pace with advancements in that direction and
upgradation while its absorption and adaptation is taking place. Then and only then, and
advancing country can compete globally in the technology market.

Answer 6. (a)

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Concept of Appropriate Technology

In countries with growing economy and technology, outright technology innovation is

unthinkable. Sticking to the old technology is self defeating and suicidal. There is a need to
make the beginning of the journey to modernization at a suitable and accessible milestone on
the technology highway. That calls for the concept of selection of appropriate technology.
Following factors will be relevant towards deciding the appropriateness of technology for an
advancing country.

a. The technology should constitute to net economic welfare of the people.

b. It should be available at affordable cost.

c. It should have a proven track record and still in vogue in advanced

countries.

d. Transfer Deal should be comprehensive and include upgradation.

e. A workable schedule for transfer including upgradation should be worked

out and targeted for.

f. The deal should be free from any extraneous considerations, handicap and
ulterior motives which may be disadvantageous to the recipients.

Managing Technology Change / Automation

Change in technological process in an engineering organization is a difficult proposition. It

requires determination of the top management, willing cooperation of all workers and a sound
transition plan. The following points should be kept in mind whenever a change is proposed:

a. Prepare a Master Plan for the change.

b. Recognize the risks in automation and cater for meeting the challenges.

c. Establish a new production technology design.

d. Allow enough time for completion of automation projects. A good tip is

“Estimate how long you will expect it to take, and then triple it”.

e. Do not try to automate everything at once. Phase it out in distinct periods.

f. Motivate and train people to implement the automated system and

manage the change according to planned phases.

g. Company’s too slow to automate may be left behind.

Answer 6. (b)

Just in Time (JIT) Inventory System

Just in Time Manufacturing System is a philosophy towards customer service orientation. JIT
Inventory and Production system is the consequence of this business philosophy. It forces the
system to produce by units ordered. There is no production even of parts. Venders are also
developed to supply items required just in time. The philosophy covers even the venders to
ensure that there are no defectives items supplied. Adequate powers are delegated to workers
to stop the production line when there is any problem or defective coming up. Little or no
supervision or guidance is required. At the core of this philosophy is extremely high motivation
and concern for human relations.

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Comparison between MRP and JIT

Both MRP and JIT emphasize on the question “When is the material required”. However the two
approaches come to the solution with a difference. A comparative study between MRP and JIT is
shown in the Table 6.2.

Criteria MRP JIT

Applicability Suitable for dynamic situation when Incapable of taking large and
demand could change significantly in sudden variations. Suitable for
the future. repetitive manufacturing
system.

Concept It involves Lost size of production at all It is rigidly single unit

stages of the product, with a scope to production without any scope
keep reserves. for keeping any reserves.

Human Orientation There is no specific human orientation. Human orientation is a

and Motivation The system works with all conventional
beliefs about approaches to people
without much focus on vendor
relations.
prerequisite for
implementation of this system
both within and outside the
organization with much focus
on vendor relations.

Inventory Level Intends to keep low inventories Tries to make the ideal of ‘no
inventories’ come true.

Concern for Quality Not very rigid and caters for rejection Total concern for quality with
of certain items below specifications. zero defects.

Need for Planning Every intermediate product and Planning is simple. It is only
process needs to be meticulously smoothened production of
planned. finished goods.

Answer 6. (d)

Preventive Maintenance

Under this system a maintenance plan is prepared after regular inspection and survey of
buildings, fixtures, plan and machinery including machine adjustments, lubrication, cleaning
parts, replacements, painting, overhaul and other activities. This system is called “Scheduled”,
“Running”, “Shut down Maintenance” or “Servicing”. It is based on philosophy “Prevention is
better than cure” or “A stitch in time saves nine”. Activities involved in Preventive Maintenance
are shown in Fig. 6.3.

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Answer 6. (e)

TQM & ISO 9000 Series

The development and concern for International Standards Specifications is an important

landmark in Quality Movement.

ISO 9000

Statement of guidelines for selection ad use of ISO Series. Standards on quality system. It is a
road map to clarify the distinction and interrelationship among Principal Quality documentation.

Non-Contractual Situations (Internal Quality Management Purpose)

Quality Management and Quality Systems. A set of building blocks to customize quality
standards and make them conform to real life situations and guidelines for developing and
implementing a sound quality management system.

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 Contractual Situations (External Quality Management Purpose)

Three Quality Assurance Models

ISO 9001 - Model for quality assurance in design / development, production,

installation and servicing to demonstrate supplier’s capability to design and supply product,
preventing non-conformity at all stages from design through to servicing.

ISO 9002 - Model for Quality assurance in production and installation to demonstrate
a supplier’s capability to control the process that determines the acceptability of product
specified.

ISO 9003 - Model for quality assurance in final inspection and testing to demonstrate
a supplier’s capability to detect and control the disposition of any product non-conformity during
final inspection and testing.

A comparative study and relationship between ISO and TQM is shown in FIG 6.4.

Quality Improvement Effort

TQM

ISO
9000
0

Quality Improvement

Criteria ISO 9000 Total Quality Management

Customer Focus Not necessarily customer focussed. Customer Focussed.

Corporate Strategy Not necessarily integrated with Integrated with corporate

corporate strategy. strategy.

Basis Based on technical systems. Based on philosophy concepts,

tools and techniques.

Employee Motivated employee Employee involvement and

Involvement empowerment is a must.

Improvement No focus on continuous There is a focus on continuous

improvement. improvement.

Quality Quality Department is primarily Everyone is responsible for

Responsibility responsible for quality. quality.

Features ISO – 9000 has three maxims. Customer satisfaction and

economic costs are distinguishing

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 1. Document what you do. features.

2. Do only what you

document.

3. Demonstrate that you have

done it with documentary
proof.

Focus. Specification focussed. Human involvement and

commitment focussed.

Answer 6. (f)

Classification of material

For facilitation of procurement, consumption and costing, the materials are classified in several
ways discussed below.

ABC Analysis

To make investment on working capital effective, ideally the amount logged in each item of
inventory should be analyzed. However, with large amounts of such items and their speedy
turnover, detailed analysis is not easily possible. ABC analysis is based on the assumption that
20% of all items held on inventory share 80% of its total cost.

• Group A consists of top 5 to 10% items which constitute 70 to 75$ of total

inventory cost.

• Group B constitutes the middle 10 to 15% items and represent 10 to 15%

of cost.

• Group C constitutes the remaining 75 to 85 % items costing 5 to 10% of

the total inventory.

The management’s concern for these items follow “Thick on the best and thin on the rest” focus
the attention on the care, use and disposal of the costliest few items and let the smaller value
lot be bought and stocked in plenty. Thus money locked is minimum and purchase processing
cost is minimized. This system was so popular that the ABC System was once called “Always
Best Control”. However with automated inventories its use is gradually reducing.

VED Analysis

This system adds a new dimension to ABC analysis. The materials are classified into Vital (like
Head in a human being), Essential (like arms) and Desirable (like hair). To cater for those items
which can bring the normal functioning of a factory to a standstill? EG. Critical machine spares
or items in limited production.

A strategy combining ABC and VED analyses is shown in Table 6.5.

Class Vital Items Essential Items Desirable Items

A Constant control and Stocks at satisfactory Low to nil stock

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 intensive follow up

B Stocks at satisfactory Very low stock

Level
level.

C Stocks at high level. Low stock

VEIN Analysis

In this system four classes. Vital, Essential, Important and Normal are used for classification.
This classification may be combined with VED or ABC Analysis to give a set of 12 strategies for
the type of material to be handled by an organization.

XYZ Classification

This is based on value of items in storage and used to review the inventories and their uses at
scheduled interval. It helps in reduction and control of obsolescence of inventories.

FSN Classification

This classification is based on consumption pattern; items are classified into Fast, Slow and Non
moving items.

SDE Classification

This classification is based on Lead Time analysis for procurement or purchasing. The items are
classified into Scarce, Difficult or Easy to procure.

GOLF Classification

This is based on the supply resources and for formulating strategy for procurement, items are
classified into Government controlled, ordinarily available in open market, Local and Foreign
items.

S – OS Classification

This classification is based on seasonal or non seasonal availability of items. Items are classified
as Seasonal and Off Seasonal.

HML Classification

This classification is based on the individual costs. Items are classified into High, Medium or Low
cost items.

Answer 6. (g)

Inventory Control

Inventory

Inventory is an aggregate of those items of tangible property, which are held for sale in the
ordinary course of business, goods, which are in process of production for such sales and also
materials currently being consumed in the production of goods and services. It includes raw

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materials, work in progress (WIP), finished goods and spare parts for the maintenance of
equipment.

Inventory Control

Inventory Control is a managerial function which involves activities that maintain stocks of items
at desired level.

Objectives of Inventory Control

Objective of Inventory Control is to ensure provision of right material in right quantity at the
right place and time.

a. Ensure availability of material at all times.

b. Minimize wastage.

c. Offer better service for customers.

d. Promote manufacturing efficiency.

e. Control production level.

f. Economize on purchasing.

g. Optimization of investment and efficient use of capital.

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